China on âTreadmill to Hellâ Amid Bubble, Chanos Says

April 8 (Bloomberg) -- Chinaâs property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.

The worldâs third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to ârun its courseâ in late-2010 or 2011, he said in an interview on âThe Charlie Rose Showâ that will air on PBS and Bloomberg TV.

China is âon a treadmill to hell,â said Chanos, who said in January the nation is Dubai times a thousand. âThey canât afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.â

Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in Chinaâs real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.

Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in Chinaâs property market.

I thought that was an interesting article too. I think a 'treadmill to Hell' is a pretty stupid analogy. The idea of a treadmill is that it doesn't actually go anywhere. Maybe a treadmill in Hell would suck, but a treadmill TO Hell? what the hell?

I would've used "chinese motorcycle to hell" myself. A friend of mine from there has a Lifan, it starts up good and for the first block it went well. Suffice it to say, after a few blocks, something went and the damn thing was uncontrollable. Later turned out to be a piece came loose. Nowhere as good as a Honda, anyways that's what I would have used isntead of the tredmill analogy.

i am not sure if there will be an actual "crash" so to speak, but prices are definitely flatlined and may drop gradually or remain stale. The government just announced another new tax this week that will hit investors like a brick (anyone owning more than 1 unit now need to pay tax on each of the investment properties).

I am all cash already, after a 300-400% gain in the past few years, the potential for a final pop of another 10-20% just isnt worth the risk. Very little upward momentum left vs risk.

Most smart moneys are out, what you have left are

1) people who actually lives in the property, dont care about the prices, and can afford the monthly cost indefinitely due to no mortgage or huge savings.

2) casual investors planning (and has the means - same no mortgage/huge savings) to hold for the long term, they dont care if the price drops 30-40%, they believe it will eventually go back up even higher after 10 years. Hongkong is often used as a prime example - had a 30-40% crash, and eventually went backup and even higher.

3) the speculators (real dumb money) who believe the prices will continue to go up and they will not be the bagholders.

1 + 2 makes a large portion of the real estate owners in shanghai compared to US, it's one the reasons i dont believe there will be a hard crash in the shanghai re market like in the us, and there are plenty people on the sideline now who are priced out and looking to buy when the prices do drop.

But i actually do hope the prices will have a hard crash so i can get back in and make more money, there are very few places right now in the world that is a good place to put money for long term investors. Just leave the money in Yuan currency been the best, risk/reward.

if the price starts to go down, it will have a hard hit. even people with cash at this moment are waiting for bottom fish, when the bottom comes, few people dare to enter. this is the psychology of most people buying high and selling low. when shanghai stock index was 6300, lots of people wished to buy cheap. they did bottom fish around 4300. but when finally the index came off to 1600, no one thought the market was cheap, and few caught the falling knives.

this would also happen in the real market in china and hongkong, otherwise, there would not be a 40% drop in hk RE.

QUOTE]Quote from newguy05:

i am not sure if there will be an actual "crash" so to speak, but prices are definitely flatlined and may drop gradually or remain stale. The government just announced another new tax this week that will hit investors like a brick (anyone owning more than 1 unit now need to pay tax on each of the investment properties).

I am all cash already, after a 300-400% gain in the past few years, the potential for a final pop of another 10-20% just isnt worth the risk. Very little upward momentum left vs risk.

Most smart moneys are out, what you have left are

1) people who actually lives in the property, dont care about the prices, and can afford the monthly cost indefinitely due to no mortgage or huge savings.

2) casual investors planning (and has the means - same no mortgage/huge savings) to hold for the long term, they dont care if the price drops 30-40%, they believe it will eventually go back up even higher after 10 years. Hongkong is often used as a prime example - had a 30-40% crash, and eventually went backup and even higher.

3) the speculators (real dumb money) who believe the prices will continue to go up and they will not be the bagholders.

1 + 2 makes a large portion of the real estate owners in shanghai compared to US, it's one the reasons i dont believe there will be a hard crash in the shanghai re market like in the us, and there are plenty people on the sideline now who are priced out and looking to buy when the prices do drop.

But i actually do hope the prices will have a hard crash so i can get back in and make more money, there are very few places right now in the world that is a good place to put money for long term investors. Just leave the money in Yuan currency been the best, risk/reward. [/QUOTE]

i am not sure if there will be an actual "crash" so to speak, but prices are definitely flatlined and may drop gradually or remain stale. The government just announced another new tax this week that will hit investors like a brick (anyone owning more than 1 unit now need to pay tax on each of the investment properties).

I am all cash already, after a 300-400% gain in the past few years, the potential for a final pop of another 10-20% just isnt worth the risk. Very little upward momentum left vs risk.

Most smart moneys are out, what you have left are

1) people who actually lives in the property, dont care about the prices, and can afford the monthly cost indefinitely due to no mortgage or huge savings.

2) casual investors planning (and has the means - same no mortgage/huge savings) to hold for the long term, they dont care if the price drops 30-40%, they believe it will eventually go back up even higher after 10 years. Hongkong is often used as a prime example - had a 30-40% crash, and eventually went backup and even higher.

3) the speculators (real dumb money) who believe the prices will continue to go up and they will not be the bagholders.

1 + 2 makes a large portion of the real estate owners in shanghai compared to US, it's one the reasons i dont believe there will be a hard crash in the shanghai re market like in the us, and there are plenty people on the sideline now who are priced out and looking to buy when the prices do drop.

But i actually do hope the prices will have a hard crash so i can get back in and make more money, there are very few places right now in the world that is a good place to put money for long term investors. Just leave the money in Yuan currency been the best, risk/reward.

Hmmm, I'm not sure about this guy, there seems to be some sort of agenda there, anyone else thinking he's just trying to spread some wildfire about China's markets crashing because he's hoping that he could make money off a recession like the one America had?